Last month ECB president Mario Draghi announced a quantitative easing (QE) program for the Eurozone; basically printing money. Soon 60 billion euros will be printed every month. The financial markets responded positively, but the news is not as great as some might think. Even more, this will end badly says Stephen Flood, Chief Executive Officer at Goldcore Ltd.
‘Who is going to pay? Someone will have to pay because that money is not going to appear out of thin air.’ This is what Flood asked himself and his answer is simple: you and me, in the form of devaluating currencies that eat away at savings, pensions and buying power.
According to Flood, the ECB had always been planning to introduce quantitative easing. Whether it wanted or not, after the Fed, the BOJ and the BOE announced their programs in 2008, it was only a matter of time. We are living in a time of worldwide competition for devaluating currencies to drive domestic growth through export, the CIO explained.
No Way Back After QE
The problem is that there is no way back. There is now an easy solution for economic problems and that solution will always be there. It is a solution for short term problems. QE is not really creating money, however, not in real terms. It is moving the monetary pool. The central banks are buying junk bonds from commercial banks and governments in exchange for cash. The hope then is that the banks will loan money again to businesses, who will in turn hire more people, produce more, and create more value for the economy. Nevertheless, banks won’t do it, says Flood.
They will use the cash first of all to raise their capital ratios and after that they will invest it in the stock market. The ECB hopes next to that that governments with more money in the treasury will be capable of collecting less taxes. That will not happen according to Flood, as it will be used for other countries within the union.
Ultimately this is a system that will impact regular people’s savings the hardest. Flood is afraid the system will undermine the foundations of the capitalist system. Work hard and you will succeed, is not a rule that will hold true anymore.
